Office Depot beats estimates on OfficeMax-related savings

The company's shares rose as much as 23 percent to a more than three-year high of $6.25 on Tuesday.

Office Depot also said it now expects the cost benefits of the OFFICEMAX (OMX.NY)acquisition to more than offset weak sales trends for the rest of the year and an increase in incentive compensation expense.

The company bought rival OfficeMax for $976 million in a deal that closed last November, to battle the one-two punch of fierce competition from retailers such as Amazon.com and the shift in consumer spending to smartphones and tablets from traditional office supplies.

Office Depot is streamline operations by cutting costs, consolidating stores, and boosting clout with suppliers to improve its chances of fighting market leader Staples Inc , as well as online and discount retailers.

Office Depot on Tuesday raised its forecast for the annual run-rate cost benefits of the OfficeMax deal to 'more than $750 million' by the end of 2016 from 'more than $700 million'.

The retailer also firmed its adjusted operating income forecast to $255-$265 million for the year ending December 2014 from its earlier forecast of 'above $200 million'.

That is expected to rise to about $475 million in 2015, above Wall Street's estimate of $359 million, according to KeyBanc Capital Markets.

SLOW SALES LINGER

Office Depot said it still expects 2014 sales to be lower than 2013. Staples warned in August that third-quarter sales could fall as demand slowed in a saturated market.

Office Depot said pro-forma sales in North America fell 7 percent to $1.72 billion in the third quarter ended Sept. 27. Same-store sales fell three percent, in line with the average analyst estimate, according to research firm Consensus Metrix.

However, margins in the division, which accounted for 42.3 percent on total sales, rose to 4.6 percent on a pro-forma basis from 1.9 percent.

Office Depot said revenue rose to $4.07 billion from reported sales of $2.62 billion a year earlier.

Net income attributable to shareholders slumped 78 percent to $29 million from a year earlier, which was boosted by a gain from the sale of its Mexican joint venture. Excluding items, Office Depot earned 10 cents per share.

Analysts on average expected a profit of 9 cents per share on revenue of $4.05 billion, according to Thomson Reuters I/B/E/S.

More than 4 million Office Depot shares exchanged hands as of 11 a.m. ET, more than double their 10-day moving average volume.

Up to Monday's close, the stock had fallen 4.2 percent this year, compared with a 4.3 percent rise in the broader Dow Jones U.S. specialty retailers index <.DJUSRS>.

(Reporting By Yashaswini Swamynathan in Bangalore; Editing by Feroze Jamal and Savio D'Souza)